Has it ever occurred to you why the world deals with different currencies? Surely, it might be easier for everyone else to use a single global currency instead of working with varying foreign exchange policies. Travelling to other countries would be easier because you wouldn’t need to go to a money changer. But the truth is much trickier to comprehend.
Monetary Unification Talks
Then-US treasury secretary Timothy Geithner once said that he’s open to the implementation of a single global currency, supervised by the International Monetary Fund. Even renowned economist John Maynard Keynes is apparently a supporter. One contradicting reason, however, states that only developed nations would benefit from the lack of currency risk in the international trade. Other nations also wouldn’t need to rely on currency exchange to make their goods cheaper on the world market.
A look at the current dominant currency, the US dollar, can yield some insights. There’s a mountain of difference between a single global currency and a dominant one. The latter allows the management of domestic currency as their policymakers see fit. Transactions in international trade are also less risky and less costly. And in economies with mismanaging policy makers looking to get rich, a dominant currency offers some hedge.
The single most obvious downfall is that independent monetary policy would be nonexistent. There would be no way to regulate national economies, particularly on the eve of a financial crisis. Take the U.S. Federal Reserve, for one. It was able to lower interest rates to unforeseen levels, therefore increasing monetary supply and stimulating economic growth.
With a global currency, the responsibility of regulating economies would fall on the single governing body. And it’s a fact that each nation has its own specific financial issues to take care of. While a global currency may promote a level playing field, looking at the current economic landscape shows a much more diversified outlook. Not everyone can keep up with their peers.
Bloomberg’s Leonid Bershidsky calls this ‘naïve utopianism.’ And for good reason: the challenges are still impractical as of late, not to mention the complexity of its technical requirements.